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Monday February 11, 2013 5:35 AM

By most accounts, 2012 was a great year for McGraw-Hill Cos. Inc. It sold its education business
for $2.5 billion. It teamed up in a new venture that put the Dow Jones industrial average and the
S&P 500 stock indexes under the same ownership. And its stock price climbed to five-year
highs.

Then, in the past week, the federal government sued McGraw-Hill. The lawsuit essentially claims
the company defrauded taxpayer-backed mortgage companies by giving a triple-A rating to IOUs backed
by trashy home mortgages. The Department of Justice has threatened to ask for $5 billion. That’s
almost half the company’s public value.

When McGraw-Hill reports its fourth-quarter and full-year results on Tuesday, no one will be
impressed. The company had hoped to trumpet its restructuring last year, separating mature
businesses such as textbook publishing from the faster-growing financial-services businesses.

With interest rates at historic lows, companies have been rushing to issue bonds. In the third
quarter, the volume of new corporate IOUs from U.S. companies jumped 72 percent from a year
earlier. To sell those bonds to investors, each needs a blessing from a credit-rating agency such
as McGraw-Hill’s Standard and Poor’s unit. That business brings in about three-quarters of
McGraw-Hill’s profits.

But more than four years after the housing bust began, McGraw Hill’s credit-rating business is
in the cross hairs of government prosecutors. How the company will survive 2013 is what investors
want to hear on Tuesday.